Korn Ferry International Announces Fourth Quarter and Fiscal 2016 Results of Operations

Highlights

- Korn Ferry reports record annual and fourth quarter fee revenue, driven by organic growth, as well as the Hay Group acquisition.

- The North America region of Executive Search and the Futurestep segment continued to deliver strong revenue growth.

- Significant progress continues to be made on the Hay Group integration.

- The Company entered into a Credit Agreement with a syndicate of banks providing for enhanced financial flexibility.

- The Company declared a quarterly dividend of $0.10 per share on June 15, 2016, payable on July 15, 2016 to stockholders of record on June 27, 2016.

LOS ANGELES, June 15, 2016 /PRNewswire/ -- Korn/Ferry International (NYSE: KFY), the preeminent global people and organizational advisory firm, today announced record fourth quarter and annual fee revenue of $399.9 million and $1.3 billion, or $405.0 million and $1.3 billion on an adjusted basis, respectively.  Fourth quarter diluted earnings per share and adjusted diluted earnings per share were $0.10 and $0.58, respectively.  FY'16 diluted earnings per share were $0.58 and adjusted diluted earnings per share were $2.08.  The adjusted diluted earnings per share for the fourth quarter and the full year excluded $32.9 million and $103.9 million, respectively, of restructuring charges, net, integration/acquisition and separation costs, a deferred revenue adjustment related to the Hay Group acquisition (which also impacted adjusted fee revenue) and a non-cash loss relating to the Venezuelan currency devaluation.

"Korn Ferry closed strong in the final quarter of its fiscal year with fee revenue of $399.9 million representing 47% growth, or adjusted fee revenue of $405.0 million representing 49% growth, and diluted earnings per share of $0.10, or adjusted diluted earnings per share of $0.58," said Gary D. Burnison, CEO Korn Ferry.  "I am enormously proud of our company and the results we have achieved during the quarter, and at the same time, continuing to deliver on the Hay Group integration at a scope and pace that has exceeded our initial expectations.

"We are in the midst of creating a new firm – with 65% of our colleagues new to the organization in the last three years, due to expansion and growth.  We are a company that accelerates our clients' business performance through solutions and productized services that span from strategy implementation and organizational design to recruitment and leadership development to compensation and reward strategies.  Our advisory business, now bolstered by our Hay Group combination, has given us more reasons to engage with clients.  Also, our recruiting businesses, Executive Search and Futurestep, have never been stronger than they were in the fourth quarter.  We are indeed creating the preeminent organizational and people advisory firm," Burnison added.

Hay Group Integration

In the fourth quarter of FY'16, we continued to make significant progress on the Hay Group integration.  The majority of our fourth quarter efforts were focused on activities associated with integration of our go-to-market activities, our intellectual property and content, our solution sets and service offerings, and our back office systems and business processes.  We incurred a minimal amount of restructuring costs, including real estate co-location. The fourth quarter results benefitted from the third quarter restructuring and integration actions with the new Hay Group segment EBITDA margin coming in at 5.6%, or 15.9% on an adjusted basis.

As previously disclosed, the integration of Hay Group will be substantially complete in Q1 FY'17, which will include additional consolidation of office space and the elimination of other redundant operational and general and administrative expenses.  We estimate the cost of these actions to be in the range of $20 million to $26 million, resulting in incremental annualized savings of approximately $17 million to $23 million.

Selected Financial Results
(dollars in millions, except per share amounts)



Fourth Quarter


Year to Date


FY'16


FY'15


FY'16


FY'15

Fee revenue

$          399.9


$       271.8


$      1,292.1


$     1,028.2

Total revenue

$          417.1


$       282.2


$      1,346.7


$     1,066.1

Operating income

$              4.9


$         28.1


$           52.7


$        114.0

Operating margin

1.2%


10.3%


4.1%


11.1%

Net income attributable to Korn Ferry

$              5.8


$         25.5


$           30.9


$          88.4

Basic earnings per share

$            0.10


$         0.51


$           0.58


$          1.78

Diluted earnings per share

$            0.10


$         0.51


$           0.58


$          1.76





EBITDA Results (a):

Fourth Quarter


Year to Date


FY'16


FY'15


FY'16


FY'15

EBITDA

$           21.4


$          40.2


$        85.8


$        151.3

EBITDA margin

5.4%


14.8%


6.6%


14.7%





Adjusted Results (b):

Fourth Quarter


Year to Date


FY'16


FY'15


FY'16


FY'15

Adjusted fee revenue

$         405.0


$        271.8


$   1,303.1


$     1,028.2

Adjusted EBITDA (a)

$           54.3


$          40.7


$      189.7


$        161.7

Adjusted EBITDA margin (a)

13.4%


15.0%


14.6%


15.7%

Adjusted net income attributable to Korn Ferry

$           32.8


$          25.6


$      110.9


$          95.5

Adjusted basic earnings per share

$           0.58


$          0.52


$        2.10


$          1.93

Adjusted diluted earnings per share

$           0.58


$          0.51


$        2.08


$          1.90







(a)

EBITDA refers to earnings before interest, taxes, depreciation and amortization.  Adjusted EBITDA further adjusts EBITDA to exclude restructuring charges (recoveries), net, integration/acquisition costs, and includes the deferred revenue adjustment related to the Hay Group acquisition and separation costs.  EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations). 








(b)

Adjusted results are non-GAAP financial measures that adjust for the following (see attached reconciliations):




Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


Deferred revenue adjustment related to the Hay Group acquisition

$                    5.1


$                 —


$            11.0


$                    —


Restructuring charges, net

$                    2.4


$                 —


$            33.0


$                  9.5


Integration/acquisition costs

$                  11.7


$                0.5


$            45.5


$                  0.9


Venezuelan foreign currency loss

$                  13.7


$                 —


$            13.7


$                   —


Separation costs

$                     —


$                 —


$              0.7


$                   —


 

Fiscal 2016 Fourth Quarter Results

Fee revenue was $399.9 million in Q4 FY'16 and adjusted fee revenue was $405.0 million (including $5.1 million in deferred revenue adjustment related to the Hay Group acquisition).  

  • Excluding fee revenue related to the Hay Group acquisition, fee revenue in Q4 FY'16 increased 4.9% (7.1% on a constant currency basis), compared to Q4 FY'15.
  • The growth was primarily due to increases in fee revenue in the North America region of Executive Search and the Futurestep segment.

Operating margin was 1.2% in Q4 FY'16 compared to 10.3% in the year-ago quarter.  The decrease in operating margin was due to an increase in integration/acquisition costs as well as restructuring charges, net, a foreign currency loss relating to the devaluation of the Venezuelan currency and the deferred revenue adjustment referenced above.

EBITDA margin was 5.4% and Adjusted EBITDA margin was 13.4%.  The year-over-year decline in Adjusted EBITDA margin (160 bps) was primarily due to an increase in compensation and benefits expense in the Futurestep segment and North America region of Executive Search to support the growth in revenue and an increased bonus expense associated with better than budgeted performance.

Fiscal 2016 Results

Fee revenue was $1,292.1 million in FY'16 and adjusted fee revenue was $1,303.1 million (including $11.0 million in deferred revenue adjustment related to the Hay Group acquisition). 

  • Excluding fee revenue related to the Hay Group acquisition, fee revenue increased 7.5% (12.4% on a constant currency basis), compared to FY'15.
  • Similar to the fourth quarter, the increase in fee revenue was primarily in the North America region of Executive Search and the Futurestep segment. In addition, a portion of the growth relates to Pivot Leadership which was acquired on March 1, 2015.

Operating income was $52.7 million in FY'16, resulting in an operating margin of 4.1% in FY'16 compared to 11.1% in FY'15.  The decrease in operating income and margin was due to an increase in integration/acquisition and restructuring costs as well as a foreign currency loss relating to the devaluation of the Venezuelan currency and the deferred revenue adjustment referenced above.

In FY'16, the Company's EBITDA margin was 6.6% and Adjusted EBITDA margin was 14.6%.  The year-over-year decline (110 bps) in Adjusted EBITDA margin was caused by the net impact of adverse market movements on the assets and liabilities associated with our deferred compensation programs, foreign currency losses, and the effect of a non-recurring gain in FY'15 relating to an insurance reimbursement for expenses incurred in prior years.  The EBITDA margin for the combined Hay Group business was 3.7% and on an adjusted basis, the EBITDA margin was 16.4%, which is consistent with the prior year. 

Results by Segment

Selected Executive Search Data
(dollars in millions)



Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


Fee revenue

$        159.7


$       156.6


$       622.9


$        597.4


Total revenue

$        165.4


$       161.7


$       644.5


$        619.3


Operating income

$          23.0


$         31.3


$       131.7


$        119.0


Operating margin

14.4%


20.0%


21.1%


19.9%











Ending number of consultants

488


452


488


452


Average number of consultants

490


448


470


442


Engagements billed

3,395


3,175


8,375


8,480


New engagements (a)

1,463


1,382


5,517


5,165







EBITDA Results (b):

Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


EBITDA

$          24.6


$        33.4


$      137.8


$        127.0


EBITDA margin

15.4%


21.3%


22.1%


21.3%







Adjusted Results (c):

Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


Adjusted EBITDA (b)

$          31.2


$        33.4


$      151.7


$        132.4


Adjusted EBITDA margin (b)

19.5%


21.3%


24.3%


22.2%








(a) 

Represents new engagements opened in the respective period.







(b)

EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).







(c)

Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):




Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


Restructuring charges, net

$                     —


$                 —


$              7.3


$                  5.4


Venezuelan foreign currency loss

$                    6.6


$                 —


$              6.6


$                   —


Executive Search

Fee revenue was $159.7 million in Q4 FY'16, an increase of 2.0% (4.5% on a constant currency basis) compared to Q4 FY'15.  The overall increase in fee revenue was primarily attributable to higher fee revenues in our North America region. 

Operating income was $23.0 million in Q4 FY'16.  Operating margin was 14.4% in Q4 FY'16 compared to 20.0% in Q4 FY'15.  Operating income and margin were negatively impacted by the foreign currency loss relating to the devaluation of the Venezuelan currency and higher compensation and benefits expense associated with better revenue performance.

EBITDA was $24.6 million in Q4 FY'16 with an EBITDA margin of 15.4% (negatively impacted by the same factors as operating income).  Adjusted EBITDA was $31.2 million with an Adjusted EBITDA margin of 19.5%, slightly down from the prior year due primarily to the factors referenced above.

Selected Hay Group Data

(dollars in millions)



Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


Fee revenue

$        187.7


$        72.8


$        471.1


$        267.1


Total revenue

$        194.7


$        75.3


$        488.2


$        275.2


Operating income (loss)

$            2.9


$          8.4


$         (3.4)


$          28.2


Operating margin

1.5%


11.5%


(0.7)%


10.6%











Ending number of consultants (a)

562


164


562


164


Staff utilization (b)

70%


74%


67%


71%











EBITDA Results (c):

Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


EBITDA

$          10.5


$        12.1


$        17.5


$          41.6


EBITDA margin

5.6%


16.6%


3.7%


15.6%







Adjusted Results (d):

Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


Adjusted fee revenue

$        192.8


$         72.8


$      482.1


$        267.1


Adjusted EBITDA (c)

$          30.7


$         12.1


$        78.9


$          44.4


Adjusted EBITDA margin (c)

15.9%


16.6%


16.4%


16.6%

















(a)

Represents number of employees originating consulting services.  FY'16 includes approximately 393 consultants from the acquisition of Legacy Hay.







(b)

Calculated by dividing the number of hours our full-time Hay Group professional staff record to engagements during the period, by the total available working hours during the same period.







(c) 

EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).







(d) 

Adjusted results are non-GAAP financial measures that adjust for the following (see attached reconciliations):




Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


Deferred revenue adjustment related to the Hay Group acquisition

$                  5.1


$                 —


$            11.0


$                   —











Restructuring charges, net

$                  2.5


$                 —


$            25.7


$                  2.8


Integration/acquisition costs

$                  5.5


$                 —


$            17.6


$                   —


Venezuelan foreign currency loss

$                  7.1


$                 —


$              7.1


$                   —


Hay Group

Fee revenue was $187.7 million and, on an adjusted basis, fee revenue was $192.8 million in Q4 FY'16 (including $5.1 million in deferred revenue adjustment related to the Hay Group acquisition).  The acquisition of Hay Group contributed $114.9 million in fee revenue and $120.0 million on an adjusted basis in Q4 FY'16.  Excluding Hay Group revenues, fee revenue was flat quarter-over-quarter and up 1.2% on a constant currency basis.

Operating income was $2.9 million in Q4 FY'16, resulting in an operating margin of 1.5%. The decrease in the margin from the prior year quarter was primarily due to the deferred revenue adjustment related to the Hay Group acquisition, restructuring charges, net, integration/acquisition costs and Venezuelan foreign currency loss.

EBITDA was $10.5 million in Q4 FY'16, with a margin of 5.6%.  Adjusted EBITDA was $30.7 million during Q4 FY'16, at an Adjusted EBITDA margin of 15.9%.  As referenced above, the Company continues to make significant progress on the Hay Group integration as reflected in the Q4 FY'16 Adjusted EBITDA margin after only five months of ownership.

Selected Futurestep Data

(dollars in millions)



Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


Fee revenue

$           52.5


$         42.4


$      198.1


$         163.7


Total revenue

$           57.0


$         45.2


$      214.0


$         171.6


Operating income

$             7.0


$           5.5


$        26.7


$           19.9


Operating margin

13.3%


13.1%


13.5%


12.2%











Engagements billed (a)

978


791


2,149


1,968


New engagements (b)

547


440


1,913


1,590











EBITDA Results (c):

Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


EBITDA

$             7.9


$           6.1


$        29.5


$           21.9


EBITDA margin

15.0%


14.4%


14.9%


13.4%











Adjusted Results (d):

Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


Adjusted EBITDA (c)

$             7.9


$           6.1


$        29.5


$           23.0


Adjusted EBITDA margin (c)

15.0%


14.4%


14.9%


14.1%








(a)

Represents search engagements billed.







(b)

Represents new search engagements opened in the respective period.







(c)

EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).







(d) 

Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):




Fourth Quarter


Year to Date



FY'16


FY'15


FY'16


FY'15


Restructuring charges, net

$                     —


$                 —


$                —


$                  1.1


Futurestep

Fee revenue was $52.5 million in Q4 FY'16, an increase of 23.8% (27.1% on a constant currency basis), compared to the year-ago quarter.  

  • The higher fee revenue was driven by a $5.6 million increase in recruitment process outsourcing in Q4 FY'16 compared to Q4 FY'15.
  • The rest of the increase was due to higher fee revenue in professional search due to a 23.6% increase in engagements billed in Q4 FY'16 compared to Q4 FY'15.

Operating income was $7.0 million in Q4 FY'16, an increase of $1.5 million, compared to Q4 FY'15, resulting in an operating margin of 13.3% in the current quarter compared to 13.1% in the year-ago quarter. 

EBITDA and Adjusted EBITDA were both $7.9 million during Q4 FY'16.  EBITDA and Adjusted EBITDA margin were 15.0%, an increase of 60 bps from the prior year.

New Credit Agreement

On June 15, 2016, the Company entered into a new senior secured $400 million Credit Agreement (the "Agreement") with a syndicate of banks and Wells Fargo Bank, National Association as administrative agent, to provide for enhanced financial flexibility and in recognition of the accelerated pace of the Hay Group integration.  The Agreement provides for, among other things: (a) a new senior secured term loan facility in an aggregate principal amount of $275 million (the "Term Facility"); (b) a new senior secured revolving credit facility (the "Revolver") in an aggregate principal amount of $125 million, (c) annual term loan amortization of 7.5%, 7.5%, 10.0%, 10.0%, and 10.0%, with the remaining principal due at maturity (d) certain customary affirmative and negative covenants, including a maximum consolidated total leverage ratio and a minimum interest coverage ratio, and (e) an expanded definition of permitted add-backs to Adjusted EBITDA in recognition of the accelerated integration actions referenced above.  The proceeds from the Agreement will be used to repay existing indebtedness and for working capital and general corporate purposes.

Both the Revolver and the Term Facility mature on June 15, 2021 and may be prepaid and terminated early by the Company at any time without premium or penalty (subject to customary LIBOR breakage fees).

Outlook

Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, on a consolidated basis:

  • Q1 FY'17 fee revenue is expected to be in the range of $371 million and $391 million; and
  • Q1 FY'17 diluted earnings per share is likely to range between $0.02 to $0.20.

On a consolidated as adjusted basis:

  • Q1 FY'17 adjusted fee revenue is expected to be in the range of $375 million and $395 million; and
  • Q1 FY'17 adjusted diluted earnings per share is likely to range from $0.50 to $0.58.

Q1 FY'17

Fee Revenue Outlook(1)



Q1 FY'17;

Earnings Per Share Outlook(2)



Low


High



Low


High



(in millions)







Korn Ferry consolidated fee revenue

$        371


$          391


Consolidated diluted earnings per share

$         0.02


$       0.20


Legacy Hay Group deferred revenue adjustment

4


4


Legacy Hay Group deferred revenue adjustment

0.05


0.05


Korn Ferry consolidated adjusted fee revenue

$        375


$         395


Integration/acquisition costs

0.06


0.03







Restructuring charges, net

0.30


0.23







Retention bonuses

0.05


0.05







Tax rate impact

0.02


0.02







Consolidated as adjusted diluted earnings per share

$         0.50


$       0.58



















(1)

Korn Ferry consolidated adjusted fee revenue is a non-GAAP financial measure that includes revenue that Hay Group would have realized over the ensuing year if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue.







(2)

Consolidated as adjusted diluted earnings per share is a non-GAAP financial measure that excludes the items listed below in the table above.

Earnings Conference Call Webcast

The earnings conference call will be held today at 4:30 PM (EDT) and hosted by CEO Gary Burnison, CFO Robert Rozek and SVP Finance Gregg Kvochak.  The conference call will be webcast and available online at www.kornferry.com, accessible through the Investor Relations section.  We will also post to this section of our website earnings slides, which will accompany our webcast, and other important information, and encourage you to review the information that we make available on our website.

About Korn Ferry

Korn Ferry is the preeminent global people and organizational advisory firm.  We help leaders, organizations and societies succeed by releasing the full power and potential of people.  Our nearly 7,000 colleagues deliver services through Executive Search, Hay Group and Futurestep divisions.  Visit www.kornferry.com for more information.

Forward-Looking Statements

Statements in this press release and our conference call that relate to future results and events ("forward-looking statements") are based on Korn Ferry's current expectations.  These statements, which include words such as "believes", "expects" or "likely", include references to our outlook.  Readers are cautioned not to place undue reliance on such statements.  Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties that are beyond the control of Korn Ferry.  The potential risks and uncertainties include those relating to competition, the dependence on attracting and retaining qualified and experienced consultants, our ability to successfully integrate acquired businesses including Hay Group, our ability to recognize the anticipated benefits of the acquisition of Hay Group which may be affected by, among other things, competition, our ability to grow and manage growth profitability, maintain relationships with customers and suppliers and retain key employees, costs related to the acquisition of Hay Group, maintaining our brand name and professional reputation, potential legal liability, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure with our growth, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, consolidation of industries we serve, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, impairment of goodwill and other intangible assets, deferred tax assets, seasonality, our ability to successfully rationalize our cost structure and employment liability risk.  For a detailed description of risks and uncertainties that could cause differences, please refer to Korn Ferry's periodic filings with the Securities and Exchange Commission.  Korn Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

This press release contains financial information calculated other than in accordance with U.S.  Generally Accepted Accounting Principles ("GAAP").  In particular, it includes:

  • adjusted net income attributable to Korn/Ferry International, adjusted to exclude restructuring charges, net, integration/acquisition costs, separation costs and includes the deferred revenue adjustment related to the Hay Group acquisition, net of income tax effect;
  • adjusted basic and diluted earnings per share, adjusted to exclude restructuring charges, net, integration/acquisition costs, separation costs and includes the deferred revenue adjustment related to the Hay Group acquisition, net of income tax effect; and in the case of the outlook section, also adjusted for Venezuelan exchange rate and tax rate impact;
  • constant currency amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period;
  • EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin;
  • Adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring charges, net, integration/acquisition costs, separation costs and includes the deferred revenue adjustment related to the Hay Group acquisition, and Adjusted EBITDA margin;
  • Consolidated adjusted fee revenue, which includes revenue that Hay Group would have realized over the ensuing year if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue; and

This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn Ferry's performance by excluding certain charges and other items that may not be indicative of Korn Ferry's ongoing operating results.  These non-GAAP financial measures are performance measures and are not indicative of the liquidity of Korn Ferry.  These charges represent 1) costs we incurred to acquire and integrate the Hay Group acquisition, 2) charges we incurred to restructure the combined company due to the acquisition of Hay Group, 3) foreign currency losses due to the devaluation of the Venezuelan currency and 4) revenue that Hay Group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue.  As such, reported fee revenue can make fee revenue and operating results appear to fluctuate more than they would if business combination accounting did not require deferred revenue to be written off. Adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of GAAP, rather, it is an adjustment for a short period of time that will provide better comparability in the current and future periods.  Management believes the presentation of adjusted fee revenue assists management in its evaluation of ongoing operations and provides useful information to investors because it allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be distorted by write-offs required under business combination accounting and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.  Management will no longer have adjusted fee revenue after Q1 FY'17.  The use of these non-GAAP financial measures facilitates comparisons to Korn Ferry's historical performance.  Korn Ferry includes these non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.  In the case of constant currency amounts, management believes the presentation of such information provides meaningful supplemental information regarding Korn Ferry's performance as excluding the impact of exchange rate changes on Korn Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making. 

[Tables attached]

KORN FERRY AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 (in thousands, except per share amounts) 











 Three Months Ended 


 Year Ended 


 April 30, 


 April 30, 


2016


2015


2016


2015


 (unaudited) 





 Fee revenue 

$   399,960


$   271,717


$1,292,112


$1,028,152

 Reimbursed out-of-pocket engagement expenses 

17,201


10,436


54,602


37,914

           Total revenue 

417,161


282,153


1,346,714


1,066,066









 Compensation and benefits 

286,852


182,886


897,345


691,450

 General and administrative expenses 

73,569


41,637


213,018


145,917

 Reimbursed expenses 

17,201


10,436


54,602


37,914

 Cost of services 

20,974


11,868


59,824


39,692

 Depreciation and amortization 

11,287


7,234


36,220


27,597

 Restructuring charges, net 

2,436


-


33,013


9,468

           Total operating expenses 

412,319


254,061


1,294,022


952,038









 Operating income  

4,842


28,092


52,692


114,028

 Other income (loss), net 

5,645


4,397


(4,167)


7,458

 Interest income (expense), net 

1,452


(358)


237


(1,784)

           Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries 

11,939


32,131


48,762


119,702

 Equity in earnings of unconsolidated subsidiaries 

185


485


1,631


2,181

 Income tax provision  

5,749


7,134


18,960


33,526

 Net income 

6,375


25,482


31,433


88,357

           Net income attributable to noncontrolling interest 

(520)


-


(520)


-

Net income attributable to Korn/Ferry International 

$        5,855


$     25,482


$     30,913


$     88,357









Earnings per common share attributable to Korn/Ferry International: 








      Basic 

$          0.10


$          0.51


$          0.58


$          1.78

      Diluted 

$          0.10


$          0.51


$          0.58


$          1.76









Weighted-average common shares outstanding: 








      Basic 

56,012


49,288


52,372


49,052

      Diluted 

56,574


49,890


52,929


49,766









Cash dividends declared per share: 

$          0.10


$          0.10


$          0.40


$          0.10

 

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

 (unaudited) 

























Three Months Ended April 30,


Year Ended April 30,



2016




2015


% Change


2016




2015


% Change


















Fee Revenue:
















Executive search:

















North America

$      94,678




$     87,579


8%


$     371,345




$     330,634


12%


EMEA 

36,161




39,677


(9%)


144,319




153,465


(6%)


Asia Pacific

21,199




22,533


(6%)


80,506




84,148


(4%)


Latin America

7,661




6,794


13%


26,744




29,160


(8%)

Total executive search

159,699




156,583


2%


622,914




597,407


4%

Hay Group

187,795




72,749


158%


471,145




267,018


76%

Futurestep

52,466




42,385


24%


198,053




163,727


21%


Total fee revenue

399,960




271,717


47%


1,292,112




1,028,152


26%

 Reimbursed out-of-pocket engagement expenses 

17,201




10,436


65%


54,602




37,914


44%


Total revenue

$    417,161




$   282,153


48%


$ 1,346,714




$ 1,066,066


26%


















Operating Income (Loss):



Margin




Margin




Margin




Margin

Executive search:

















North America

$      19,857


21.0%


$     20,030


22.9%


$     100,381


27.0%


$       80,818


24.4%


EMEA

5,695


15.7%


5,530


13.9%


20,607


14.3%


18,867


12.3%


Asia Pacific

2,904


13.7%


4,589


20.4%


12,572


15.6%


14,631


17.4%


Latin America

(5,498)


(71.8%)


1,191


17.5%


(1,854)


(6.9%)


4,704


16.1%

Total executive search

22,958


14.4%


31,340


20.0%


131,706


21.1%


119,020


19.9%

Hay Group

2,871


1.5%


8,376


11.5%


(3,415)


(0.7%)


28,175


10.6%

Futurestep

6,987


13.3%


5,573


13.1%


26,702


13.5%


19,940


12.2%

Corporate

(27,974)




(17,197)




(102,301)




(53,107)




 Total operating (loss) income

$        4,842


1.2%


$     28,092


10.3%


$       52,692


4.1%


$     114,028


11.1%

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 










April 30,


2016


2015

ASSETS




Cash and cash equivalents

$       273,252


$    380,838

Marketable securities

11,338


25,757

Receivables due from clients, net of allowance for doubtful accounts 

of $11,292 and $9,958 respectively

315,975


188,543

Income taxes and other receivables

20,579


10,966

Prepaid expenses and other assets

43,130


31,054

Total current assets

664,274


637,158





Marketable securities, non-current

130,092


118,819

Property and equipment, net

95,436


62,088

Cash surrender value of company owned life insurance policies, net of loans

107,296


102,691

Deferred income taxes

83,715


59,841

Goodwill

590,072


254,440

Intangible assets, net

233,027


47,901

Investments and other assets

51,240


34,863

Total assets

$   1,955,152


$ 1,317,801





LIABILITIES AND STOCKHOLDERS' EQUITY




Accounts payable

$         26,634


$      19,238

Income taxes payable

8,396


3,813

Compensation and benefits payable

266,211


219,364

Term loan

30,000


-

Other accrued liabilities

145,023


63,595

Total current liabilities

476,264


306,010





Deferred compensation and other retirement plans

216,113


173,432

Term loan, non-current

110,000


-

Deferred tax liabilities

61,640


-

Other liabilities

43,834


23,110

Total liabilities

907,851


502,552





Stockholders' equity




Common stock: $0.01 par value, 150,000 shares authorized, 69,723 and 62,863 shares issued and 57,272 and 50,573 shares outstanding, respectively

702,098


463,839

Retained earnings

401,113


392,033

Accumulated other comprehensive loss, net

(57,911)


(40,623)

Noncontrolling interest

2,001


-

Total stockholders' equity

1,047,301


815,249

Total liabilities and stockholders' equity

$   1,955,152


$ 1,317,801

 

KORN FERRY AND SUBSIDIARIES

 RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES 

 (in thousands, except per share amounts) 













 Three Months Ended 


 Year Ended 



 April 30, 


 April 30, 



2016


2015


2016


2015



 (unaudited) 





Fee revenue 


$       399,960


$       271,717


$   1,292,112


$   1,028,152

Deferred revenue adjustment due to acquisition (1) 


5,096


-


10,967


-

           Adjusted fee revenue 


$       405,056


$       271,717


$   1,303,079


$   1,028,152










Operating income 


$           4,842


$         28,092


$         52,692


$       114,028

Depreciation and amortization 


11,287


7,234


36,220


27,597

Other income (loss), net 


5,645


4,397


(4,167)


7,458

Equity in earnings of unconsolidated subsidiaries, net 


185


485


1,631


2,181

Net income attributable to noncontrolling interest 


(520)


-


(520)


-

           EBITDA 


21,439


40,208


85,856


151,264

Deferred revenue adjustment due to acquisition (1) 


5,096


-


10,967


-

Restructuring charges, net (2) 


2,436


-


33,013


9,468

Integration/acquisition costs (3) 


11,594


514


45,409


959

Venezuelan foreign currency loss (4) 


13,720


-


13,720


-

Separation costs (5) 


-


-


744


-

           Adjusted EBITDA 


$         54,285


$         40,722


$       189,709


$       161,691










Operating margin 


1.2%


10.3%


4.1%


11.1%

Depreciation and amortization 


2.8%


2.7%


2.8%


2.7%

Other income (loss), net 


1.4%


1.6%


(0.3%)


0.7%

Equity in earnings of unconsolidated subsidiaries, net 


0.1%


0.2%


0.1%


0.2%

Net income attributable to noncontrolling interest 


(0.1%)


-


(0.1%)


-

            EBITDA margin 


5.4%


14.8%


6.6%


14.7%

Deferred revenue adjustment due to acquisition (1) 


1.2%


-


0.8%


-

Restructuring charges, net (2) 


0.6%


-


2.5%


0.9%

Integration/acquisition costs (3) 


2.8%


0.2%


3.5%


0.1%

Venezuelan foreign currency loss (4) 


3.4%


-


1.1%


-

Separation costs (5) 


-


-


0.1%


-

           Adjusted EBITDA margin 


13.4%


15.0%


14.6%


15.7%










Net income attributable to Korn/Ferry International 


$           5,855


$         25,482


$         30,913


$         88,357

Deferred revenue adjustment due to acquisition (1) 


5,096


-


10,967


-

Restructuring charges, net (2) 


2,436


-


33,013


9,468

Integration/acquisition costs (3) 


11,594


514


45,409


959

Venezuelan foreign currency loss (4) 


13,720


-


13,720


-

Separation costs (5) 


-


-


744


-

Tax effect on the above items (6) 


(5,846)


(332)


(23,819)


(3,282)

           Adjusted net income attributable to Korn/Ferry International 


$         32,855


$         25,664


$       110,947


$         95,502










Basic earnings per common share 


$             0.10


$             0.51


$             0.58


$             1.78

Deferred revenue adjustment due to acquisition (1) 


0.09


-


0.20


-

Restructuring charges, net (2) 


0.04


-


0.63


0.19

Integration/acquisition costs (3) 


0.21


0.01


0.87


0.02

Venezuelan foreign currency loss (4) 


0.24


-


0.26


-

Separation costs (5) 


-


-


0.01


-

Tax effect on the above items (6) 


(0.10)


-


(0.45)


(0.06)

           Adjusted basic earnings per share 


$             0.58


$             0.52


$             2.10


$             1.93










Diluted earnings per common share 


$             0.10


$             0.51


$             0.58


$             1.76

Deferred revenue adjustment due to acquisition (1) 


0.09


-


0.20


-

Restructuring charges, net (2) 


0.04


-


0.62


0.19

Integration/acquisition costs (3) 


0.21


-


0.86


0.02

Venezuelan foreign currency loss (4) 


0.24


-


0.26


-

Separation costs (5) 


-


-


0.01


-

Tax effect on the above items (6) 


(0.10)


-


(0.45)


(0.07)

           Adjusted diluted earnings per share 


$             0.58


$             0.51


$             2.08


$             1.90





Explanation of Non-GAAP Adjustments 

(1)

Increase in fee revenue relating to the deferred revenue recorded on the opening balance sheet of Hay Group, required by fair value accounting. The adjustment is included in the Hay Group segment. On a GAAP basis, Hay Group fee revenue was $187.7 million and $471.1 million during the three months and year ended April 30, 2016, respectively. On an adjusted basis, Hay Group fee revenue was $192.8 million and $482.1 million during the three months and year ended April 30, 2016, respectively. 

(2)

Restructuring plan implemented in order to rationalize our cost structure by eliminating redundant positions and consolidating office space due to  the acquisition of Legacy Hay on December 1, 2015. 

(3)

Cost associated with completing the acquisition of Hay Group, such as legal and professional fees, and the on-going integration expenses to   combine the companies. 

(4)

Foreign currency loss associated with the devaluation of the Venezuelan currency. 

(5)

Certain senior management separation charges. 

(6)

Tax effect on deferred revenue adjustment associated with the acquisition of Hay Group, restructuring charges, net, integration/acquisition costs, foreign currency loss associated with the devaluation of the Venezuelan currency and separation costs. 

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)






 Three Months Ended April 30, 2016 



 Executive Search 











 North America 


 EMEA 


 Asia Pacific 


 Latin America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 




















 Fee revenue 


$      94,678


$      36,161


$      21,199


$        7,661


$    159,699


$    187,795


$      52,466


$                 -


$    399,960




















 Net income 


















$        6,375

       Other income, net 


















(5,645)

       Interest income, net 


















(1,452)

       Equity in earnings of unconsolidated subsidiaries, net 


















(185)

       Income tax provision 


















5,749

 Operating income (loss) 


$      19,857


$        5,695


$        2,904


$       (5,498)


$      22,958


$        2,871


$        6,987


$     (27,974)


4,842

       Depreciation and amortization 


796


219


237


88


1,340


7,796


614


1,537


11,287

       Other income (loss), net 


278


206


123


31


638


(131)


277


4,861


5,645

       Equity in earnings of unconsolidated subsidiaries, net 


185


-


-


-


185


-


-


-


185

       Net income attributable to

noncontrolling interest 


-


-


-


(491)


(491)


(29)


-


-


(520)

 EBITDA 


21,116


6,120


3,264


(5,870)


24,630


10,507


7,878


(21,576)


21,439

 EBITDA margin 


22.3%


16.9%


15.4%


(76.6%)


15.4%


5.6%


15.0%




5.4%




















       Restructuring charges, net 


15


(59)


-


(6)


(50)


2,441


49


(4)


2,436

       Integration/acquisition costs 


-


-


-


-


-


5,555


-


6,039


11,594

       Venezuelan foreign currency loss 


-


-


-


6,635


6,635


7,085


-


-


13,720

       Deferred revenue adjustment

due to acquisition 


-


-


-


-


-


5,096


-


-


5,096

 Adjusted EBITDA 


$      21,131


$        6,061


$        3,264


$            759


$      31,215


$      30,684


$        7,927


$     (15,541)


$      54,285

 Adjusted EBITDA margin 


22.3%


16.8%


15.4%


9.9%


19.5%


15.9%


15.0%




13.4%









































 Three Months Ended April 30, 2015 



 Executive Search 











 North America 


 EMEA 


 Asia Pacific 


 Latin America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 




















 Fee revenue 


$      87,579


$      39,677


$      22,533


$        6,794


$    156,583


$      72,749


$      42,385


$                 -


$    271,717




















 Net income 


















$      25,482

       Other income, net 


















(4,397)

       Interest expense, net 


















358

       Equity in earnings of unconsolidated

subsidiaries, net 


















(485)

       Income tax provision 


















7,134

 Operating income (loss) 


$      20,030


$        5,530


$        4,589


$        1,191


$      31,340


$        8,376


$        5,573


$     (17,197)


28,092

       Depreciation and amortization 


853


398


274


101


1,626


3,579


508


1,521


7,234

       Other income, net 


190


14


86


22


312


89


27


3,969


4,397

       Equity in earnings of unconsolidated

subsidiaries, net 


145


-


-


-


145


-


-


340


485

 EBITDA 


21,218


5,942


4,949


1,314


33,423


12,044


6,108


(11,367)


40,208

 EBITDA margin 


24.2%


15.0%


22.0%


19.3%


21.3%


16.6%


14.4%




14.8%




















      Acquisition costs 


-


-


-


-


-


-


-


514


514

 Adjusted EBITDA 


$      21,218


$        5,942


$        4,949


$        1,314


$      33,423


$      12,044


$        6,108


$     (10,853)


$      40,722

 Adjusted EBITDA margin 


24.2%


15.0%


22.0%


19.3%


21.3%


16.6%


14.4%




15.0%

 

KORN FERRY AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO

EBITDA AND ADJUSTED EBITDA (NON-GAAP)

(in thousands)

(unaudited)






 Year Ended April 30, 2016 



 Executive Search 











 North America 


 EMEA 


 Asia Pacific 


 Latin America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 




















 Fee revenue 


$    371,345


$    144,319


$      80,506


$      26,744


$    622,914


$    471,145


$    198,053


$                 -


$ 1,292,112




















 Net income 


















$      31,433

       Other loss, net 


















4,167

       Interest income, net 


















(237)

       Equity in earnings of unconsolidated subsidiaries, net 


















(1,631)

       Income tax provision 


















18,960

 Operating income (loss) 


$    100,381


$      20,607


$      12,572


$       (1,854)


$    131,706


$       (3,415)


$      26,702


$  (102,301)


52,692

       Depreciation and amortization 


3,267


1,029


941


312


5,549


21,854


2,386


6,431


36,220

       Other (loss) income, net 


(147)


433


21


312


619


(868)


364


(4,282)


(4,167)

       Equity in earnings of unconsolidated subsidiaries, net 


437


-


-


-


437


-


-


1,194


1,631

       Net income attributable to noncontrolling interest 


-


-


-


(491)


(491)


(29)


-


-


(520)

 EBITDA 


103,938


22,069


13,534


(1,721)


137,820


17,542


29,452


(98,958)


85,856

 EBITDA margin 


28.0%


15.3%


16.8%


(6.4%)


22.1%


3.7%


14.9%




6.6%




















       Restructuring charges, net 


499


5,807


577


322


7,205


25,682


49


77


33,013

      Integration/acquisition costs 


-


-


-


-


-


17,607


-


27,802


45,409

       Venezuelan foreign currency loss 


-


-


-


6,635


6,635


7,085


-


-


13,720

       Deferred revenue adjustment due to acquisition 


-


-


-


-


-


10,967


-


-


10,967

       Separation costs 


-


-


-


-


-


-


-


744


744

 Adjusted EBITDA 


$    104,437


$      27,876


$      14,111


$        5,236


$    151,660


$      78,883


$      29,501


$     (70,335)


$    189,709

 Adjusted EBITDA margin 


28.1%


19.3%


17.5%


19.6%


24.3%


16.4%


14.9%




14.6%









































 Year Ended April 30, 2015 



 Executive Search 











 North America 


 EMEA  


 Asia Pacific 


 Latin America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 




















 Fee revenue 


$    330,634


$    153,465


$      84,148


$      29,160


$    597,407


$    267,018


$    163,727


$                 -


$ 1,028,152




















 Net income 


















$      88,357

       Other income, net 


















(7,458)

       Interest expense, net 


















1,784

       Equity in earnings of unconsolidated subsidiaries, net 


















(2,181)

       Income tax provision 


















33,526

 Operating income (loss) 


$      80,818


$      18,867


$      14,631


$        4,704


$    119,020


$      28,175


$      19,940


$     (53,107)


114,028

       Depreciation and amortization 


3,515


1,764


1,045


350


6,674


13,427


1,882


5,614


27,597

       Other income (loss), net 


288


83


369


109


849


(22)


54


6,577


7,458

       Equity in earnings of unconsolidated subsidiaries, net 


426


-


-


-


426


-


-


1,755


2,181

 EBITDA 


85,047


20,714


16,045


5,163


126,969


41,580


21,876


(39,161)


151,264

 EBITDA margin 


25.7%


13.5%


19.1%


17.7%


21.3%


15.6%


13.4%




14.7%




















       Restructuring charges, net 


1,151


3,987


17


229


5,384


2,758


1,154


172


9,468

       Acquisition costs 


-


-


-


-


-


-


-


959


959

 Adjusted EBITDA 


$      86,198


$      24,701


$      16,062


$        5,392


$    132,353


$      44,338


$      23,030


$     (38,030)


$    161,691

 Adjusted EBITDA margin 


26.1%


16.1%


19.1%


18.5%


22.2%


16.6%


14.1%




15.7%

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/korn-ferry-international-announces-fourth-quarter-and-fiscal-2016-results-of-operations-300285227.html

SOURCE Korn Ferry